Gloomy housing sector data and continued layoffs led to a subdued Wall Street opening as investors played safe with their profits after a succession of session gains.

Investors were also reacting to a warning from Federal Reserve chairman Ben Bernanke that Congress and the Obama administration must start plotting a strategy to curb record-high US budget deficits.

Failing to do so could eventually erode investor confidence and endanger the economy’s prospects for long-term health, he said.

Testifying before the House Budget Committee, Mr Bernanle said: “Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

The White House estimates that the government will rack up an unprecedented $1.8 trillion budget deficit this year. That would be more than four times last year’s all-time high.

The Dow Jones industrial average was down 71.76points, or 0.82 per cent, lower at 8,669.11.

A survey by ADP, a payroll business, revealed that the US private sector shed 532,000 jobs in May – better than 545,000 in April but slightly higher than the 525,000 estimated.

The US Mortgage Bankers Association also said mortgage applications fell 16.1 per cent for the week ended May 29.

The CIPS/Markit purchasing managers’ monthly survey on the services sector did little to help the FTSE 100, which continued its downward spiral, slumping by 108.8 points, or 2.43 per cent, by mid-afternoon.

Heavyweight blue chips were to blame for part of the fall as they began to trade ex dividend.

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